What does he think about signs that the German economy may be reviving?
He is also keen to calm recent speculation that the German economy might sudden re-emerge as an economic powerhouse. The optimism has been kindled by signs that investment is growing and that German corporate profitability has increased on the back of extensive restructuring by firms which has improved their international competitiveness by driving down costs. Indeed the only thing holding the German economy above water in the past year or two has been exports. "I agree that there have been some positive signs recently. We could be at a point in the business cycle where the strong export orders spill over into domestic demand, particularly investment demand," he says, but adds that if these are to translate into dynamic growth in the medium and longer term, Germany needs to continue down the reform path it launched a couple of years ago.
Indeed the only thing holding the German economy above water in the past year or two has been exports.
"I agree that there have been some positive signs recently. We could be at a point in the business cycle where the strong export orders spill over into domestic demand, particularly investment demand," he says, but adds that if these are to translate into dynamic growth in the medium and longer term, Germany needs to continue down the reform path it launched a couple of years ago.
Note that business cycle. If the German, and more generally eurozone, economies move into a faster-growth phase, I predict we'll be hearing it again from journalists and pundits and "experts". (Germany and France are doing better, the "Anglo-Saxon" economies are stalling? Oh, that's just a natural movement of the blah blah business cycle blah blah doesn't prove anything blah blah.)
But has monetary policy anything to do with Germany and the eurozone's sluggish growth? Mr Weber says nein:
Current interest rates are appropriate for the euro area.
Well, did Gordon Brown and the Bank of England do a better job with the pound?
the British economy has been doing well over recent years and ... our colleagues at the Bank of England have been able to deliver a degree of price stability that is conducive to growth
Oh, so maybe he's politely saying that the UK's monetary policy has been rather better adjusted than the eurozone's...
More than that, he thinks Britain has been getting everything right. Just look at those unemployment numbers... Below 5% for the UK, above 11% for Germany...
Well, has UK growth not been a bit debt-fueled? He doesn't say, and Ashley Seager doesn't ask him. But
He is not unduly concerned about the threat from the housing market, observing that house prices seem to be stable rather than falling.
Well, Germany has (had) a lot on its back with re-unification, hasn't it? Well, yes.
This alone explains two-thirds of the country's underperformance over the past decade, he adds.
But nothing specific about monetary policy (see this excellent Jérôme comment) explaining a fairly long-term ball-and-chain effect on German and surrounding economies; and nothing to the effect that Germany's 11% unemployment is an average weighed down by 18% in former East Germany.
So why does Weber think the UK is doing well and Germany poorly?
"The long-term growth potential of an economy very strongly depends on having flexible and dynamic labour markets because that's the key driving force for household incomes and therefore consumption decisions, and for investment decisions for firms. "This puts Britain in a good position to cope with the challenges of globalisation," he adds <snip> "The labour market is key. In Europe we need to have more flexible labour markets and more structural reforms." <snip> Some key decisions have to be taken after the election which will influence future events," he says.
"The labour market is key. In Europe we need to have more flexible labour markets and more structural reforms." <snip>
Some key decisions have to be taken after the election which will influence future events," he says.
Ah, now we've got the agenda.
(I thought it was dangerous for central bankers to be influenced by politics, but I must have missed something as usual).
In my recent post about Toyota creating jobs in France, I noted howx they were using a combination of one third full time unlimited jobs, one third limited duration jobs, and one third temps. That allows for more than just a little bit of flexibility...
As a matter of fact, big business is actually pretty happy with the 35 hour law, as it made the 35 hour count not on a weekly basis, but on a yearly basis. Thus it became a lot easier for them to organise work around their busiest season, or to have night and weekend shifts.
I remember reading that following these reorganisations (and to deal with the success of its 206 and 307 models), Peugeot was working its factories at 110-120% of their designed capacity thanks to smart organisation of labor - and there were enough volunteers for the week-en or night shifts (where they only had to do 30 hours or so as compensation for the tough timetable) that it was organised pretty preacefully labour wise.
So let's stop these stories about inflexible labor rules - at least for big companies. In the long run, we're all dead. John Maynard Keynes
